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3. a) A European company must pay to its Japanese subcontractor 1,250,000,000 yens for the trade agreed today. The payment is due in the middle
3. a) A European company must pay to its Japanese subcontractor 1,250,000,000 yens for the trade agreed today. The payment is due in the middle of March. al) To what kind of currency risk is the European company exposed? a2) How could it hedge best against that risk with using either March euro futures for which the contract size is 125,000 or March yen futures for which the contract size is 12,500,000 yens. The current spot rate for euro is 150 yens and the corresponding March futures rate is 145 yens. The delivery date for the currency futures is the third Wednesday of contract month. a3) By the middle of March the yen has appreciated against the euro so that the spot rate is then 142 and the corresponding March futures rate is 141, respectively. Assess the efficiency of hedging by calculating the profits and losses from spot and futures transactions. a4) Was the hedge perfect? If not, why? 3. a) A European company must pay to its Japanese subcontractor 1,250,000,000 yens for the trade agreed today. The payment is due in the middle of March. al) To what kind of currency risk is the European company exposed? a2) How could it hedge best against that risk with using either March euro futures for which the contract size is 125,000 or March yen futures for which the contract size is 12,500,000 yens. The current spot rate for euro is 150 yens and the corresponding March futures rate is 145 yens. The delivery date for the currency futures is the third Wednesday of contract month. a3) By the middle of March the yen has appreciated against the euro so that the spot rate is then 142 and the corresponding March futures rate is 141, respectively. Assess the efficiency of hedging by calculating the profits and losses from spot and futures transactions. a4) Was the hedge perfect? If not, why
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